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Prepaid Card Industry – Product Offerings, Leading
Players, Current Trends, and Challenges Faced
Prepaid cards: A boon to financial institutions
Introduction
Over the years, prepaid cards have been
launched to meet payment needs of various
customer segments / industry processes
– gifting, payroll processing, government
benefit disbursement, consumer
transit, travel expenditure, healthcare
reimbursements, student groups, insurance
disbursement, and employee incentive
processing. Unbanked customers, who either
are new to banking or have a poor credit
history for various reasons are also being
included as potential customers for use of
prepaid cards.
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The prepaid card industry is facing
various challenges such as keeping the
product pricing competitive, promoting
standardization, and improving security. To
overcome these challenges, the financial
institutions are pushing for a streamlined
know your customer (KYC) process,
allowing reload of prepaid cards in ATMs,
standardizing fees, and embracing Europay,
MasterCard, and Visa (EMV), to reduce fraud.
The global market for prepaid cards is
projected to reach US$3.1 trillion by 2022,
with the growing financial needs of
unbanked and under-banked customers
and growth fueled by innovations in card
features, online transactions, and the need
to go cashless across the globe. Mercator
Advisory Group forecasts that the growth
of open loop prepaid cards in the US will
increase by seven percent through 2018
reaching a total of US$343 billion and the
closed loop prepaid will have a three percent
CAGR through 2018 by reaching a total of
US$371 billion.
Overview of product offerings in prepaid cards
Prepaid cards can be classified into various categories:
Product name
Description
General purpose
reloadable (GPR) prepaid
cards
GPR prepaid cards are reloadable prepaid cards and typically open-loop cards (issued under one of the
card network logos) with a wider acceptance at merchant outlets.
Prepaid debit card
These cards are similar to GPR prepaid cards and issued as an alternative to checking accounts for
people who do not qualify for a banking account or cannot afford the fees linked to maintaining a bank
account. These cards work with a wide variety of transactions in gas stations, grocery shops, paying bills,
or online transactions. They work with open loop and closed loop networks.
Prepaid gift card
These cards can be gifted to anyone for different occasions and the recipient can use them for various
purchases in stores as well as online. They are non-reloadable and the money loaded is fixed ranging
from US$25 to US$500. If the card is lost or stolen, it can be replaced by providing the account number.
Payroll card
Payroll cards were introduced for the benefit of unbanked employees. These cards have the flexibility
of prepaid debit cards and traditional debit cards for making purchases, paying bills, and withdrawing
money from ATMs. Payroll cards reduce the cost and increase the efficiency of payroll processing.
Government benefit card
This card was introduced for the benefit of citizens receiving funds from the government sector. These
cards allow users to receive food stamps, child support, unemployment benefits, veteran’s benefits,
pensions, or social security payments. Government benefit cards increase the efficiency of administration
of government assistance programs.
Prepaid transit card
Transit cards are reloadable cards with limited usability. They can be obtained from public transportation
operators and cash IS loaded through online or at onsite reload machines, or point-of-sale (POS)
terminals. These cards are used solely for purchasing transit fares and at the issuing transportation
system. These cards do not require identity verification of the cardholder for activation. Transit cards can
be issued to anyone without any identity check of the traveler.
Prepaid travel card
As the name suggests, the prepaid travel card is designed for travel reservations and transactions during
trips. They are also called prepaid currency cards where the card is loaded before departing on a trip
with the home currency and all the transactions are automatically converted to local currency with
foreign transaction fee. To avoid this foreign exchange fee, some travel cards ask cardholders to select
the foreign currency and lock the exchange rate on the day the card is loaded with funds. Prepaid travel
cards are reloadable.
Health savings account
card
The employer offers a flexible spending account called heath savings account, where the employee can
set aside a part of the wages for eligible medical expense, which has the advantage of being tax-free.
Once the threshold limit is met for the year, the employee can earn interest and this card can be used in
ATMs, hospitals, and pharmacies.
Prepaid student ID Card
Some universities and colleges offer student ID cards that serve multiple purposes like making purchases
or paying for services in campus. Such cards are reloadable. Colleges and universities have started special
arrangements with banks and other financial institutions, which allow students to link their bank account
with student ID cards, so they can withdraw cash in ATMs.
Prepaid incentive card
These cards serve the purpose of rewarding employees for their satisfactory work. Corporates can issue a
prepaid incentive card to their employees instead of providing a voucher or a gift card.
Prepaid insurance card
Insurance companies offer prepaid insurance cards to improve efficiency and speed of claim
disbursements. They are mainly used for vehicle accidents, worker compensation payouts, and payouts
for property insurance.
Prepaid business card
Businesses that do not wish to provide corporate credit or debit cards to their employees, contractors, or
vendors, turn to prepaid business cards as an alternative. These cards are intended for paying businessrelated expenses, including equipment, consulting services, office supplies, and meetings.
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Leading players in the prepaid card industry
Table 1 provides details of product features, fees, and unique offerings for some of the leading prepaid card players. We have
highlighted various aspects such as product functionality, marketing, pricing construct, loading and unloading channels,
account management, customer support, and value-added services for these prepaid card offerings.
Table 1
Prepaid offering
Green Dot
NetSpend
Chase Liquid
Holding company
Green Dot
TSYS
JPMorgan Chase
Funding options
• Direct deposit
• Add cash at 65,000 retailers
and financial centers
• Tax refund direct deposit
• Mobile check deposit
• Walmart check cashing
• Bank transfer
•MoneyPak
• Direct deposit
• Add cash at 130,000
groceries, gas stations, check
cashiers, and convenience
stores
• Mobile check deposit
• Bank transfer
•MoneyPak
• Direct deposit
• Cash and check at 11,500 Chase
deposit-friendly ATMs
• Cash and check at Chase
branches
• Mobile check deposit
• Bank transfer
Withdrawal and
payments
• Point of sale (POS)
transaction
• Online purchase
• Green Dot check
• Card-to-card transfer
• Online bill pay
• 24,000+ MoneyPass ATM
network
•
•
•
•
•
•
•
•
•
•
•
Fees
• No minimum balance
• Monthly fee of US$7.95
(Waived if US$1,000 or more
is added to card)
• Different fee plans based on
usage:
Pay as you go at no fees
Fee advantage plan at
US$9.95
NetSpend premier fee
advantage plan at US$5.00
Monthly fee of US$7.95 (Waived if a
qualifying Chase checking account
is linked)
Account
management
• Text alerts
• Text Green Dot to receive
balance
• Mobile app
• Online account
management
• Text alerts (customizable on
app)
• Mobile app
• Online account management
•
•
•
•
Differentiating
features
• Overdraft feature at no extra
cost
• 5% cashback on the Green
Dot cashback Visa card
• Add funds to PayPal cash
using Green Dot
• Overdraft up to US$10 at no
extra cost
• Payback reward points
• Savings account with interest
accrual up to 5%
• Refer a friend and earn US$20
• Personalized prepaid card
with custom image
• Provision for virtual card
number for online purchases
• Zero liability protection
• NetSpend for businesses
• No fees towards negative
balance
• Zero liability protection
• Chip card provides muchenhanced security
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POS transaction
Online purchase
Card to card transfer
Online bill pay
POS transaction
Online purchase
Card-to-card transfer
Online bill pay
Money order
Cashier's check
Cash withdrawal at Chase ATMs
and branches
Email and text alerts
Text Chase to receive balance
Mobile app
Online account management
Holding company
Bluebird
Mango
Kaiku
American Express
Mango Financial
Kaiku
Funding options
• Direct deposit
• Cash or debit card at Walmart
checkout register
• Mobile check deposit
• Bank transfer
•MoneyPak
• Direct deposit
• Add cash at participating
groceries, check cashiers,
and convenience store
checkout registers
• Bank transfer
•PayPal
•MoneyPak
• Western Union
• Direct deposit
• Mobile check deposit
• Bank transfer
• Visa ReadyLink
•MoneyGram
Withdrawals and
payments
• POS transaction
• Online purchase
• Bluebird check
• Card-to-card transfer
• Online bill pay
• 24,000+ MoneyPass ATM network
• Cash out at Walmart checkout registers
•
•
•
•
•
•
•
•
•
•
Fees
No monthly fee but a one-time charge for
the card equal to US$5.00
Monthly fee of US$3.00
Monthly fee of US$3.00 (Waived if
US$750 or more is added to card)
Account
management
• Text alerts
• Text Bluebird to receive balance and
transaction history
• Mobile app
• Online account management
• Text alerts
• Mobile app
• Online account
management
• Text alerts
• Mobile app
• Online account management
Differentiating
features
• Set up family accounts with limits defined
for each member
• Set aside funds for any purpose (No
interest accrual)
• Purchase protection
• Fraud protection
• Amex offers on dining, shopping, and
retail
• Roadside assistance
• Amex customer service
• Savings account with up to
6% interest accrual
• Refer a friend and earn
US$10
• Fraud protection
• The budgeting tool provided is
very intuitive and easy to use
• Very transparent pricing
structure
POS transaction
Online purchase
Card-to-card transfer
Online bill pay
Cash out at select checkout
registers (Walmart, Target,
CVS, etc.)
POS transaction
Online purchase
Card-to-card transfer
Online bill pay
55,000+ Allpoint ATM network
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Current industry trends in prepaid cards
By analyzing these products, it is evident that
innovations in the prepaid card industry are
primarily driven by the ease of adding funds
to the prepaid card, acceptance of the card
at various retailers, access to ATMs and other
means of withdrawing cash, cost associated
with prepaid services, and the ability to
manage finances. Major prepaid cards have
come up with innovative ways of catering to
customer needs.
Multiple avenues to add funds
In addition to direct deposits and bank
transfers, customers are offered the facility
to load their cards through mobile check
deposit. This feature allows customers to
deposit funds into their prepaid account by
photographing a check through their mobile
application. The check is processed and the
funds are added into the prepaid card after
a stipulated time frame. Bluebird, Kaiku, and
AccountNow are some of the prepaid card
providers, which offer this kind of feature in
partnership with Ingo Money.
Bluebird offers its customers the facility to
fund their prepaid card through cash or
other cards at any Walmart checkout register.
Customers who own a Chase liquid card
can access a network of 16,000 ATMs and
5,200 branches to deposit cash. Furthermore,
prepaid card customers can also use
MoneyPak and Western Union to load funds.
Card acceptance
All major prepaid card offerings carry one of
the leading card network logos such as Visa,
MasterCard, American Express, or Discover.
Any merchant outlet that allows debit or
credit cards with the respective card network
logos accepts these cards.
Cash withdrawal
Kaiku, in partnership with Allpoint ATMs,
enables its customers to withdraw cash at
55,000 ATMs across the USA. If customers
perform direct deposits of US$750 or more
every month, the surcharge fee required to
access this ATM network is waived.
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Bluebird allows its customers to withdraw
cash from 24,000 MoneyPass ATMs as well as
from Walmart checkout counters.
Prepaid card providers are expanding not
only banking channels, but also other means
such as retail checkout counters to provide
easier access to their customers’ funds.
Cost of using a prepaid card
There are two key aspects to promoting
prepaid cards. One is to ensure that the cost
of using a prepaid card is more cost-effective
than other means to transact. Second is to
ensure the fees are transparent and there are
no hidden charges.
Prepaid card providers understand these
nuances and provide a flat pricing structure
for almost all transactions, which not only
makes it transparent, but also makes it easier
for customers to calculate charges. The
AccountNow prepaid card has no monthly
fee and a one-time activation fee of US$4.95.
It does not require a minimum balance, but
attracts fees on transactions. The Amex
Bluebird is cost-effective with no monthly
fees but a one-time activation fee of US$5.00.
Most of the transactions on the Bluebird do
not attract any fee.
Besides cost-effectiveness and transparency,
customers also look for personalization
in prepaid card plans. NetSpend offers its
customers personalized pricing plans – a
pay-as-you-go plan that does not attract
a monthly fee but charges transactions,
whereas the fee advantage plan levies
a monthly charge of US$9.95 and offers
free transactions.
With increasing competition and evolving
customer needs, pricing plans are evolving
too. The prepaid card industry is also
structuring its plan to drive positive
customer behavior. Fees levied by
prepaid card players on the cardholder
are fee for purchase at store, fee for online
purchase, ATM cash withdrawal fee, teller
cash withdrawal fee, foreign transaction
fee, replacement card fee, and monthly
charges. Financial institutions usually charge
customers a higher fee for withdrawing cash
in any form. This fee therefore incentivizes
customers to use the card at POS or
transact online rather than withdrawing
cash. Also performing inquiries, tracking
spend, and managing funds online or on
the mobile application is free as compared
to walking into a branch or inquiring at an
ATM. Financial institutions are also pushing
customers to opt for direct deposit by
waiving the monthly fee (in many cases) or
based on the value of funds that come in.
savings account. Customers can earn up to
six percent on their savings account if they
maintain an average balance of US$800
or more.
Loyalty
Most prepaid card providers offer their
customers the following means to manage
their accounts:
Prepaid providers have taken many initiatives
to provide loyalty features to their customers.
Green Dot offers a five percent cashback
on all purchases. NetSpend has gone a step
ahead and introduced customized cashback
offers. Based on customer behavior, they
receive vouchers on their mobile application,
which they can use at participating outlets
and acquire cashback. Bluebird utilizes the
rewards program of its parent organization,
American Express, to offer cashback. With
cashback finding its way into the prepaid
industry, there will be a much needed boost
to customer loyalty.
• Text notifications
Companion cards
• Online account management
Prepaid suppliers are also offering
companion cards to their customers.
Companion cards can be issued to family
members and their funds will be linked
to one master prepaid card account. The
primary card user can define limits and
controls for the companion cards handed
to the family members. This is an extremely
attractive feature for parents and an
alternative to cash. Parents can provide their
children with companion cards, monitor
spending, and define limits. Some prepaid
cards also allow the customer to choose
outlets where the card can be used.
Ability to manage finances
• Mobile application
Text alerts are cost-effective ways to inform
the customer that a transaction was done
above a specified limit and the limit can be
configured according to the customer needs.
Customers also have the option to track their
expenditure through mobile applications
and online platforms. Mobile applications
offer an intuitive way of tracking their
customers’ monthly budget and expenses,
and hence, are becoming more popular.
Customers, can, through some mobile
applications, transfer funds from one prepaid
card account to another. Kaiku offers this
feature on its mobile platform and calls it
Pay Friends. The American Express Bluebird
mobile prepaid card allows its customers to
keep aside money for future spending needs
through a feature called SetAside on the
mobile application. Customers have access
to these funds anytime and can transfer in
or out with this feature. Mango is one of the
few prepaid cards to offer its customers a
Contactless
Contactless is a feature that would be
great to have on prepaid cards. Contactless
reduces the friction related to payments as it
has a Tap-and-Go feature rather than dip or
swipe and with predefined transaction limits.
Prepaid cardholders will have a convenient
payment option for low-value transactions.
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Challenges faced by
prepaid card players
and solutions
Security concerns
Since gift cards are of low-value
denominations, they generally do not need
any documentation as opposed to regular
bank accounts, which need IDs and address
proofs and even credit reports in some cases
to issue a debit / credit card. Thus, acquiring
multiple gift cards becomes easy and legal.
This loophole in the gift card product can
be easily exploited by those customers who
want to bypass KYC documentation. Terrorist
financing is one of the key concerns arising
out of this loophole and strict regulations
need to be put in place to prevent illegal
money from being channelized through
legitimate sources, by buying gift / prepaid
cards. There is also a risk of fraudulent use of
prepaid cards for money laundering, which
is of concern to financial institutions. Recent
frauds in the prepaid card industry have
highlighted the preference of fraudsters
to use gift cards as the prime channel of
payment to other fraudsters.
Since prepaid cards are generally of low
denominations, service providers do not
find them cost-effective to convert to EMV
chip and pin cards. The Chase liquid card is
chip-enabled and other prepaid players are
expected to embrace EMV. The cost of chip
card issuance would get offset by reducing
prepaid card fraud over a period of time.
As customers get educated on the benefits
of EMV, they might be willing to incur the
additional cost of the chip in prepaid cards.
Very few prepaid card players allow
consumers to open a prepaid account
by using an ID card issued by a foreign
government, or by using an individual
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taxpayer identification number (ITIN) instead
of social security number (SSN). This presents
a challenge, especially for immigrants, who
represent a large and growing segment of
consumers needing financial services, to
apply for prepaid accounts.
on the card. If the card is used in other
countries, these fees will most likely increase.
Since most players are introducing the chip
and pin cards compliant to EMV, it increases
the production cost, which is passed on to
the end-user in one way or the other.
Similarly, a functionality where the customers
can upload their KYC documents via a
mobile app will go a long way to improve
customer satisfaction and reduce security
concerns. Such innovations will drive more
prospective customers into opening prepaid
card accounts.
Loading funds into prepaid cards still remains
time-consuming in spite of the expansion of
person-to-person (P2P) payments, remote
deposit capture (RDC), and cash reloads.
A majority of the prepaid products do not
allow cash deposits via ATMs, and a third of
them do not allow loading checks through
RDC. There is an opportunity in this space
to make loading funds onto cards easier
and accessible to all. Prepaid cards issued
by banks should be reloadable at ATMs,
whereas for the non-bank prepaid cards, the
issuer should partner with third-party ATM
networks to allow cash deposit via ATMs.
Cost to cardholders
Some of the prepaid products are covered
under the consumer protection laws and
regulations. Disclosure of fees associated
with payroll cards, liability in case of lost or
stolen cards, and others, are not undertaken
for all prepaid products. Gift cards are
supposed to disclose any fees that may be
charged and the expiration date, if any, but
there are no federal requirements to limit the
liability of unauthorized transactions using
the gift cards.
In addition, there is no consistency on the
duration of notice required to change the
terms and conditions for using prepaid cards.
For instance, in case of payroll cards, banks
must provide 21 days’ notice before making
any changes to the terms, but there is no
such notice period defined for generalpurpose reloadable cards and gift cards.
Prepaid cards also turn out to be an
expensive alternative to traditional banking
since they come with an exhaustive list of
fees and charges. Some products also charge
overdraft or shortage fees if a cardholder, by
mistake, spends more than what is loaded
Lack of standardization
There is a lack of standardization of fees, for
example, inactivity fees and account-closing
fees associated with the products, features,
and services in the prepaid segment, thus
making it difficult for customers to choose
between the various offerings in the market.
Direct comparison between various prepaid
products is a complex exercise making the
process of selecting the provider a timeconsuming exercise. To ease some of these
concerns and accelerate the acceptance of
prepaid cards, a set of common industry
standards will greatly help. The Consumer
Financial Protection Bureau (CFPB) has
proposed new regulations and guidelines to
impart standardization of features, provide
security of funds on prepaid cards to prevent
fraud, misuse, and theft of funds, and aid the
customer in selecting the right product that
suits their needs.
Various communication channels are currently
being used to educate customers about
policies, new features, and special offers for
prepaid cards. Players in this industry should
also use these communication channels to
inform customers about the various fees, and
provide tips on how to spend correctly to
reduce the fees applicable. High fees remain
a common source of customer grievance and
helping them manage this well will increase
satisfaction and retain customers.
Unclear value proposition to
consumer
New functionalities like supplementary cards,
saving features, budgeting tools, and a few
others are being introduced by prepaid
providers. However, their penetration in
the market is not high. Prepaid card players
should focus on understanding customer
preferences and spending habits to improve
these features, and make the products more
customer-focused. Using the cardholders’
account information and transactional data,
prepaid players can provide additional
financial services like secured credit cards,
insurance products, checking accounts, and
so on. They can also use the data to assess
the financial health of the customer and offer
assistance to improve their credit score and
overall financial situation.
Some providers offer credit access to prepaid
cardholders, which is definitely a bold move.
Once CFPB finalizes the prepaid regulations,
providers should explore various credit models
that offer a balance between customer
success and provider profitability. Finally, any
new product needs to bring added value
as compared to the existing products, to be
widely accepted by the customers.
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Conclusion
Prepaid cards present unique offerings and
target specific customer segments / industry
processes that are in need of simplicity and costeffectiveness. Prepaid cards, in addition to being
an alternative to cash, offer customers safety,
security, and greater ease of transaction. Most
notably, these products propagate predictability
and discipline, which enable consumers to limit
spending and encourage budgeting. Prepaid
cards offer a payment tool, especially for those
consumers with no credit history, or a bad one for
that matter, and ensure financial inclusion for the
unbanked population.
Prepaid players are working to address existing
challenges, especially relating to KYC and fraud.
With prepaid players introducing sophisticated
features, the boundaries between prepaid cards
and other banking products are expected to blur.
Mobile applications offered by prepaid players
further shadow these boundaries and offer a
dynamic banking ecosystem.
The prepaid segment is expected to grow
exponentially by 2022, with the US market
touching US$3.1 trillion. In order to have a
share in the pie, prepaid providers should
continue evolving and innovating not only from
a technological standpoint, but also from a
consumer standpoint and redefine the way the
prepaid product is perceived by the public.
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References
1.http://www.strategyr.com/Marketresearch/Prepaid_Cards_Market_Trends.asp
2.https://www.mercatoradvisorygroup.com/Reports/12th-Annual-U_S_-Prepaid-Cards-Market-Forecasts_2015%E2%80%932018/
3.http://www.businesswire.com/news/home/20160429005848/en/Global-Prepaid-Card-Market-2016---2020
4.https://wallethub.com/edu/prepaid-card-types/25823/
5.http://www.strategyr.com/Marketresearch/Prepaid_Cards_Market_Trends.asp
6.https://www.mercatoradvisorygroup.com/Reports/12th-Annual-U_S_-Prepaid-Cards-Market-Forecasts_2015%E2%80%932018/
7.http://www.businesswire.com/news/home/20160429005848/en/Global-Prepaid-Card-Market-2016---2020
8.http://newsroom.mastercard.com/press-releases/independent-research-forecasts-that-the-european-openloop-prepaid-market-will-reach-156bn-127bn-by-2017/
9.http://www.strategyr.com/PressMCP-7448.asp
10.http://moneyfacts.co.uk/guides/credit-cards/the-advantages-and-disadvantages-of-prepaid-cards/
11.http://assets.aarp.org/rgcenter/ppi/econ-sec/insight47_prepaid.pdf
12.http://www.cfsinnovation.com/Document-Library/2016-Prepaid-Scorecard
13.https://www.greendot.com/
14.https://www.netspend.com/
15.https://www.chase.com/debit-reloadable-cards/liquid-prepaid-card
16.https://www.chase.com/online/digital/online-bill-pay.html?jp_ltg=cta
17.https://www.bluebird.com/
18.https://www.mangomoney.com/
19.https://www.kaiku.com/
20.https://wallethub.com/
21.http://www.toptenreviews.com/money/credit-cards/best-prepaid-debit-cards/
22.http://www.cfsinnovation.com/Find-your-topic/More-Topics/Prepaid
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About the Authors
Venkat Aravamudhan
Lead Consultant, Cards and Payments Practice, Infosys
He has more than 12 years of experience in the cards and payments domain. His core experience is in
consulting and project management, especially in the prepaid cards domain and new product launches
across the globe.
He can be reached at [email protected]
Jennifer Mariasoosai
Senior Associate Consultant, Cards and Payments Practice, Infosys
She has more than five years of experience in the cards and payments domain. Her core experience
includes tokenization and profile management.
She can be contacted at [email protected]
For more information, contact [email protected]
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